What we must learn from the Infosys saga

Never raise your voice at me in public. Now apologise! she says to her spouse, when he tries to stop her from doing something that may cause her harm. “I was trying to help you. I thought you were doing something wrong. You weren’t listening to me,” he says. “It doesn’t matter. Whatever it is, it is embarrassing for me when you yell at me,” she says. He apologises for raising his voice. Peace is restored temporarily. And they do not discuss what his concern was.

The dispute at Infosys between its iconic founder, N R Narayan Murthy, and the board has settled down with the appointment of co-founder, the eminent Nandan Nilekani as chairman of the board. Shareholders are relieved. Murthy was castigated by the business media for making his concerns public. Much shareholder value was destroyed for a few weeks. Murthy’s concerns were with ‘values’, which seemed to matter a lot to him. Will his concerns be examined now? The question about ‘good corporate governance’, which seemed to have broken down in Infosys by Murthy going public with his concerns, needs deeper examination too.

Murthy’s primary concern seemed to be with the compensation given to the CEO and other executives. He thought it was excessive and inequitable. The board’s response was that it was broadly in line with current global corporate practices. Those norms and practices are being challenged in many countries, including the US, the UK, and Europe. Therefore, Murthy, who has been a champion of equity and restraint in compensation of top executives, can be forgiven for becoming agitated if he feels the company he founded and built on those principles may become just like others.

Compensation to top execs

The large increase in the compensations of top executives in Indian companies over the past 20 years, which are now several hundred times higher than median incomes in the companies, has been a concern for many who care about the quality of India’s social fabric. It is an issue that the board of Infosys, a company considered as a leader and norm-setter in India, must apply itself to more deeply than it appears to have.

How should anyone vested in a company raise an issue about ethical values when the management and board of a company is focused on creating shareholder value as they are expected to? Who is responsible for blowing the whistle? And how can he or she ensure the whistle is heard? The institution of independent directors on the board, who are ‘independent’ of both promoters and the management, is created for this purpose. Independent directors are expected to help the company increase shareholder value. But they are also expected to be internal watchdogs, looking out for the interests of society, pointing out to the rest of the board when the latter’s decisions or management’s actions may be contravening the company’s espoused values.

The integrity of a company rests heavily on the integrity of its independent directors. If they fail to blow the whistle, or even to notice when the whistle should be blown because they have been completely co-opted into the shareholder value generating process (and indeed are selected because they have the skills for this), then the society should hope that someone else will blow the whistle. Which Murthy seems to have.

If an independent director becomes concerned about a breach of values and raises it, quietly, internally, and the concern is not addressed, should not the internal director be expected to make a louder noise? Public opinion is of great concern for political leaders and for companies and their brands too. Sadly, the only way to be heard sometimes seems to be to ‘leak’ the story to the outside world. That is what James Comey, the FBI Director, felt compelled to do when the US President, his boss, wasn’t listening.

The greatest loyalty to an institution requires the courage to tell truth to power. Whistle blowers are hardly ever popular with the institution they warn. They may sound too critical of, and even disloyal to the institution. The institution, and even the public, may demand that the whistle-blower apologise for raising the alarm in public and for damaging the institution’s reputation.

The board of Infosys had gone public with accusations against Murthy, as he had about the board. Who should apologise to whom is not important. Infosys must change its strategy and its business model to continue creating shareholder value in a business environment which is different to the one in which it has been very successful in the past. Nilekani’s principal task is to put in place a board and management team for this. However, that is not all that has to be done.

Issues of values and corporate governance practices have surfaced, particularly about norms of executive compensation, and the responsibility of independent directors to uphold values and society’s interests beyond those of shareholders. Just as the Supreme Court takes a particular incident as a provocation to examine broader principles, the Infosys story must trigger a deeper examination of these matters amongst those who care about standards of corporate governance in India and elsewhere too.

(The writer is a former member of the Planning Commission)